Lean Startup

Feb 21 2013

The Three Biggest Risks to Your Startup

Starting any new venture is risky. Before we can limit or manage the risk, we have to understand it.

Most startup (or new product) risk can be divided into three buckets:

Tech Risk
Market Risk
Ego Risk

Tech Risk

Tech risk is what entrepreneurs (or intrapreneurs, for those starting something within an existing structure) most often think about when starting a new venture. Can I build this thing? Is it scalable? Do I have enough servers? The irony is that, especially for consumer web startups, this risk is usually negligible. Most web startups aren’t doing anything that hasn’t been done before, unless it involves patentable algorithms. It may not be easy, but there’s high certainty that it can be done, given sufficient resources.

Market Risk

Market risk is the antithesis of the idea that “if you build it, they will come.” Do people have this problem? If we can deliver the solution, will people even want it? Can we reach the people who will buy this product? Do people believe that our solution is credible? Entrepreneurs should be thinking carefully about market risk.

Ego Risk

The final type of risk facing any new venture is ego risk – and it’s probably the most important and the least discussed type of risk. Ego risk is the chance that an entrepreneur can’t get out of her or his own way, pay attention to the data, overcome cognitive biases, and avoid falling prey to a reality distortion field.

With so much risk, it’s a wonder any new venture survives (many of them don’t). But researchers and entrepreneurs have worked hard on each of these types of risks, and there are strategies for ameliorating each one.

Tech Risk + Agile

Tech risk is often mitigated with some implementation of Agile methodologies. I sat down with Agile expert Elliot Susel to ask him how entrepreneurs can get started with Agile. Listen to that interview here: See the Full Transcript.

Market Risk + Lean Startup

Minimizing market risk is the driving force behind much of the lean startup movement. By making a set of small bets in the form of lightweight experiments, entrepreneurs can validate market demand before investing in building a system to deliver a solution or product. Plus, talking to customers often helps entrepreneurs identify problems they had not originally imagined. Sometimes those new problems are more pressing for the customer, and lead to a new product with less market risk.

Ego Risk + ?

Ego risk is the final and most difficult hurdle. There’s no clear-cut answer to this challenge. Religions and philosophers have been focused on ego for millennia. But a meditation or mindfulness practice can be particularly useful in helping us step back from our impulsive reactions to external stimuli (e.g. data that challenges our preconceived notions, particularly if our self-worth is invested in being right, or in one particular self-image.)

Of course, even a zen-master-like separation from the ego doesn’t completely protect us from cognitive biases, nor does a higher IQ or more awareness of these effects. In fact, there is some evidence to suggest a correlation between higher IQ and higher susceptibility to cognitive biases. We don’t yet have any proven methods for overcoming biases, but the Wikipedia page on mitigation is very interesting reading, and a good starting point for learning more.

Nov 18 2012

Certainty in Lean Startups

Minimum Viable Products (MVPs) are experiments, but not the kind you learned in school. You won’t get statistically significant results that could be published in a peer-reviewed journal – but you will get the kind of information that can help you make a choice about your next move.

In business, the scientific method doesn’t give you proof or absolute certainty. It doesn’t make the decision for you. It does reduce uncertainty to let you place smarter bets. A small amount of data can get you from 50/50 to 25/75, and that’s a big difference.

If you think of starting a company as playing blackjack, then lean startup is counting cards. You still have to make the bet, and you’re still going to lose sometimes. But by playing smarter – by making a series of small bets, and betting bigger when you’re more certain of the outcome – you can tilt the odds of winning in your favor.

Nov 02 2012

The Founding Trio

Dave McClure of 500 Startups calls it the holy trinity of startup founders. The frequent mantra in the startup space is that there are three primary types of founders: hackers, hustlers, and designers. The prevailing wisdom is that you should have one of each of these on your founding team. But we don’t often talk about what constitutes each of these archetypes.

Hackers

Hackers are not simply code monkeys. They need to be able to do more than just code well. Comfort with ambiguity and an understanding for coding in that context is invaluable for the hacker-founder. Many programmers are happier simply building what they’ve been told to build, but the good entrepreneurs are those who think about what happens when the requirements change – and code as if they will. This means building some things quick and dirty, and accepting that there will be some technical debt incurred in favor of rapid iteration.

Communication skills are also critical for hacker-founders. To achieve company success beyond personal success, you need to be able to communicate a vision to other technical team members and to translate for your non-technical co-founders. Likewise, some comfort with project management is valuable. Finally, any good programmer should understand how their outcomes tie to the success of the business. For programmers working for others, this is the way you communicate your worth; for hacker-founders, this is how you prioritize, test, and iterate for your startup.

Hacker-founders are not the only ones who need these skills, but the reality that there is far less supply than demand for excellent technical co-founders may tempt many non-technical folks to overlook these gaps in their search for a technical co-founder. If all you’re looking for is a code monkey, don’t make them a co-founder; just hire them on a contract basis until you can attract someone who has the complete package.

Hustlers

Hustlers are usually the business development specialists in a startup. It is important to note that this is not the same as an “ideas person.” Ideas people are thinkers; hustler-founders are doers. In a startup, anyone who fails to contribute anything beyond ideas is dead weight and should be cut loose at the earliest opportunity. Hustlers are the ones making deals happen, talking to customers or partners, raising funding to extend the runway, and generally removing obstacles for the rest of the team. Hustler-founders need to be resilient in the face of an endless stream of “no” and tireless in their pursuit of opportunities to promote the company.

Designers

When we talk about designer-founders, most people think about web design or mobile app design, but these are not the most important skills. What startups really need is UX designers, not graphic designers. This point gets lost because many designer-founders have both sets of skills. But make no mistake: this role is not about making your product pretty. It’s about making your product enjoyable and effective. Designer-founders should have extensive experience with problem solving and a disciplined approach to understanding the customer’s problem and designing for the customer’s interactions and experiences with the solution.. Designer-founders might approach this task from perspectives including design thinking, lean startup, user experience design, ethnographic research, or some other school of thought. The important part is that the designer-founder focuses on creating an complete end-to-end experience for the customer, not just the gloss that covers it.

A little of column A, a little of column B…

Few roles fit squarely into one of these categories without overlapping with the others, and any early startup employee needs to be prepared to tackle any challenges that arise. However, if your founding team has the right mix of skills to cover each of these three areas, it will give you a better chance of overcoming challenges and ultimately building a sustainable company.

Sep 13 2012

6 Smart Ways to Innovate Inside Your Corporate Culture (Guest Post at TLC Labs)

I’ve written a guest post for TLC Labs titled 6 Smart Ways to Innovate Inside Your Corporate Culture (originally at http://tlclabs.co/?p=734). I invite you to check it out, along with the rest of their fantastic blog about adopting lean startup methodologies and fostering a culture of innovation inside a 40-year old corporation.

Apr 10 2012

Lean is not Skeletal

Lean does not mean bare bones. It does not mean minimize expenses at any cost. It does not prohibit raising money.

In biology, lean refers to the proportion of muscle to excess fat. In business, lean means getting more value for fewer resources.

Reduce waste. Be lean, not skeletal. Don’t cut the muscle.

It’s about efficiency. And sometimes being efficient actually means scaling up and using more resources. Elite athletes eat more than the rest of us. Michael Phelps needed to consume 12,000 calories a day during the Beijing Olympics.

Too often, I hear people talking about how they are being lean by limiting their resource consumption, instead of putting those resources behind the right purpose.
It can be tempting to focus on the resources part of the equation, and eliminate all sorts of things just because we can. The problem lies in forgoing activities that actually create value. Just because something is expensive, doesn’t mean it’s wrong. Don’t stop doing things, just stop doing the wrong things.

What are the wrong things? Anything that doesn’t contribute to creating incremental value. Value should not be confused with cash, unless the sole purpose of your organization is to produce cash. Most organizations define value differently depending on their industry.

Industry	Increments of Value
Manufacturing	high-quality physical goods
Software development	working code in the final product
Startup	validated learning
Nonprofit	social or environmental change

Lean startups don’t have to be bootstrapped. They can raise funding. They just need to be deliberate and focused about how they spend the money they raise.